Unit 4

RESOURCE MANAGEMENT
SYSTEMS FOR DEPENDENT
DEMAND INVENTORY
Outlines

4.1 Resource Planning Systems

A. MRP Systems and Extensions

B. Enterprise Resource Planning (ERP)

4.2Lean Supply Systems

A. The Basic Elements of Lean Production

B. Lean procurement
 Unit Objectives

► Outline the various resource planning

approaches and lean systems covered

► Describe the benefits and drawbacks

of these systems

► Describe how lean principles are

applied to procurement
Unit 4.1

Resource Planning
Systems
By the end of this section, you should
be able to:

► Describe the MRP process and when to use MRP

► Outline the extension of MRP to MRP-II, CRP,

DRP and ERP systems

► List the key requirements and weaknesses of

MRP systems

► Describe the impact of MRP systems on

procurement and supply
A. MRP SYSTEMS AND EXTENSIONS

► A computerized inventory control and production

planning system

► One objective is to maintain the lowest possible

level of inventory, by determining when
component items are needed and scheduling
them to be ready at that time, no earlier and no
later

► Also planned procurement activities (for raw

materials and purchased components),
manufacturing activities (for component parts and
assemblies) and delivery schedules (for finished
products).
A. MRP SYSTEMS AND EXTENSIONS

► With its computerized database, able to keep track

of the relationship of job orders so that if a delay in
one aspect of production is unavoidable, other
related activities can be rescheduled

► Not all organisations have been successful in

implementing MRP systems

► Implementation may take years and involve major

investments in training, data preparation and
organisational adjustments as well as in computer
software and hardware
A. MRP SYSTEMS AND EXTENSIONS

► When to use MRP

► Dependent Demand
► Discrete Demand
► Complex Products
► Erratic Orders
► Assemble-to-Order

► MRP Inputs
► Master Production Schedule (MPS)
► Bill of Material
► Inventory Records
A. MRP SYSTEMS AND EXTENSIONS

► MRP Lot Sizing

 Lot-for-lot (L4L) is the most common
technique

 Others:
► Minimum order quantities
► Maximum order quantities
► Multiple order quantities
► Economic Order Quantity (EOQ)
► Least Total Cost (LTC)
► Lease Unit Cost (LUC)
A. MRP SYSTEMS AND EXTENSIONS
► MRP Process:
1. Exploding the BOM
2. Netting out Inventory
3. Lot sizing
4. Time phasing requirements

► MRP matrix (Table 9.1) for each item - gross requirements,

scheduled receipts, projected on hand, net requirements,
planned order receipts and planned order releases.

► The outputs are work orders to be released to the shop

floor for in-house production or purchase orders to be sent
to outside suppliers or action notices or rescheduling
notices (Figure 9.3)
A. MRP SYSTEMS AND EXTENSIONS
► Capacity Requirements Planning (CRP)

 A computerized system that projects the load from a

given material plan onto the capacity of a system
and identifies under-loads and overloads

 MRP planner to level the load; smooth out the

resource requirements so that capacity constraints
are not violated

 Closed-loop MRP system

 3 major inputs: MRP system output, open orders file

(work center status data) and routing file (shop
routing data) - Figure 9.4.
A. MRP SYSTEMS AND EXTENSIONS
► Manufacturing Resource Planning (MRP-II)

 An extension of MRP and an outgrowth of the

closed-loop MRP system

 An explicit and formal manufacturing information

system that integrates the internal functions of a
company, enabling it to coordinate manufacturing
plans with sales, while providing management with
essential accounting and financial information

 Combine the capability of ‘what if’ production

scenario testing with financial and cash flow
projections to help achieve the sales and
profitability objectives of the company
A. MRP SYSTEMS AND EXTENSIONS
► Distribution Resource Planning (DRP)

 System for forecasting or projecting requirements

for finished products at the point of demand

 Aimed primarily at improving the management of

finished product inventory and controlling the
transport of goods in multi-level distribution chains
where there are various levels of storage depots.

 2 major benefits
► Simulation of transportation requirements in
complex supply networks
► Reduction of the administrative effort and related
paperwork significantly
B. ENTERPRISE RESOURCE PLANNING
(ERP)

► An umbrella system that ties together a

variety of specialized systems which varies
on a case-by-case basis, based on the vendor
and the selected system (Figure 9.6)

► Utilizes the idea of a centralized and shared

database system

► Eliminates the inconsistency and

incompatibility created when different
functional areas use different systems with
overlapping data
B. ENTERPRISE RESOURCE PLANNING
(ERP)

► Provides the mechanism for supply chain members to

efficiently share information so that scarce resources
can be fully utilized to meet demand, while minimizing
supply chain inventories

► Implementation has been proven to be a real challenge

for many. Most ERP systems are written based on the
best practices of selected companies. Thus, a
condition required for implementation of the system is
that the user’s business processes must conform to
the approaches used in the software logic

► Two primary requirements of successful

implementation are computer support and accurate,
realistic inputs
Unit 4.2

Lean Supply Systems

By the end of this section, you
should be able to:

► Identify the key elements of lean production

working in concert

► Explain the origin of JIT concept

► Describe the concept of pull production and

KANBAN systems

► Outline the benefits and drawbacks of lean

production
► Identify the problems and suggestions of
implementing lean procurement
A. THE BASIC ELEMENTS OF LEAN
PRODUCTION

1. Eliminate Waste

 Lean production is the result of the

mandate to eliminate waste

 Waste or ‘muda’ was defined as ‘anything

other than the minimum amount of
equipment, materials, parts, space and time
which are absolutely essential to add value
to the product’
A. THE BASIC ELEMENTS OF LEAN
PRODUCTION

2. Increase Flexibility

 Flexible Resources
 Cellular Layouts

3. Smooth the Flow

 Pull System
 Kanbans (e.g. dual kanban system in course text)
 Small Lots
 Quick Setups
 Uniform Production
A. THE BASIC ELEMENTS OF LEAN
PRODUCTION

4. Continuously Improve

 Quality at the Source

o Visual controls mechanisms: kanbans,
standard operation sheets, andons,
process control charts, tool boards and
poka-yoke.
o Kaizen continuous improvement system
o ‘Jidoka’ concept

 Total Productive Maintenance

 Supplier Networks
A. THE BASIC ELEMENTS OF LEAN
PRODUCTION

 Japanese industry embraced lean production in the

mide-1970s. Many USA companies adopted lean
production in some forms in the 1980s

 Globalization and e-commerce have brought a new

generation of manufacturers and suppliers

 None of these concepts or techniques is new or

particularly revolutionary

 What is unique and remarkable is how the pieces are

tied together into a finely tuned operating system and
how synchronized that system can be with both the
external and internal business environments
B. ELEMENTS OF LEAN
PROCUREMENT

 Reduced order quantities

 Lead time reduction
 Frequent and ‘on time’ delivery
schedules
 High quality of incoming materials
 Reliable suppliers
B. ADVANTAGES OF LEAN
PROCUREMENT
► Inventory Reduction
► Flexible scheduling
► Lead time reliability improvement
► Quality and customer satisfaction
improvement
► Cost reduction of materials
► Synergies with suppliers
B. CHALLENGES IN LEAN
PROCUREMENT
► Lack of cooperation from suppliers
► Lack of top management support
► Lack of employee readiness and
support
► Lack of support from design
engineering personnel
► Low product quality
► Lack of communication
► Lack of support from transporters
 Conclusion
► Inventory management activities for the recent times have
been a significant state of change

► It is becoming increasingly difficult for most

organisations to control inventories effectively

► The routinization of the daily operation often camouflages

the importance of sound management

► The effects of poor inventory management are not directly

visible on the operating statement as a composite cost of
inventory management

► Top management should carefully formulate and

periodically review the basic policies and operating plans
that constitute the framework within which the daily
inventory control operation functions
 Conclusion
► The interface between procurement with production and
inventory planning is extremely important

► Production and inventory planning decisions influence the

parameters within which procurement and does its work

► At the same time, the effectiveness with which

procurement does its job directly influence the success of
the planning systems

► In this dynamic environment it is imperative that the

functions be developed in close coordination because of
the interdependencies they share – and that operationally
they be coordinated effectively on a day-to-day basis