Chapter 4: Controlling Material Flow

1. MRP
2. JIT

1
1. Material Requirement Planning
(MRP)
 Independent versus Dependent Demand
 Independent Demand
 automobiles, televisions, cartons
of ice cream
 demand often occurs at constant
rate
 Dependent Demand
 most raw materials,
components, and subassemblies
 demand often occurs in lumps
 MRP is designed when lumps in
demand are known
 Example: The Boardsports Company
Production time: 1 week
Component Quantity Lead Time

Sidewalk Special (SS) 1 1 week

Fiberglass board 1 3 weeks

Wheel assembly 2 1 week

Wheel mount stand 1 4 weeks

Wheel 2 1 week

Locknut 2 1 week

Spindle 1 2 weeks
Skateboard Product Tree
 Material Requirements of Sidewalk Special
Fiberglass boards = 1  number of specials
Wheel assemblies = 2  number of specials
Wheels = 2  number of wheel assemblies
Spindles = 1  number of wheel assemblies
Locknut = 2  number of wheel assemblies
Wheel mount stand = 1  number of wheel assemblies
 Material Required to Produce 50 SS
Fiberglass boards =1  number of specials = 1  50 = 50
Wheel assemblies =2  number of specials = 2  50 = 100
Wheels =2  number of wheel assemblies = 2  100 = 200
Spindles =1  number of wheel assemblies = 1  100 = 100
Locknut = 2  number of wheel assemblies = 2  100 = 200
Wheel mount stand =1  number of wheel assemblies= 1  100 = 100
 Delivery 50 Sidewalk Specials in Week 10

Week
1 2 3 4 5 6 7 8 9 10
Sidewalk Specials 50
Date needed 50
Boards Order date 50 3 week lead time
Date needed 100
Wheel assembly Order date 100
Date needed 200
Wheels Order date 200
Date needed 100
Spindles Order date 100
Date needed 100
Mounting stands Order date 100
Date needed 200
Locknuts Order date 200
Schematic of MRP System
 Master Production Schedule
 Based on actual customer orders and predicted demand
 Indicates When and How many end items will be produced
 Example: MPS for a family of chairs

April May
1 2 3 4 5 6 7 8

Ladder-back chair 150 150

Kitchen chair 120 120

Desk chair 200 200 200 200

Aggregate production plan 670 670

for chair family
 Bill of Materials (BOM)

 Indicates all the raw materials, components, subassemblies,

and assemblies required to produce an item
 Shows way a finished product or parent item is put together
from individual components
 Finished product is at lowest level: level 0. subsequent levels
are parent components, then components
 Production planners explode BOM for level zero item to
determine the number, due dates, and order dates of
subcomponents
Another Example of a BOM
 Inventory Master File
 Includes many inventory records
 Inventory record shows an item’s lot-size policy, lead-time, and
time-phased data:
 Scheduled receipts: waiting for purchasing/processing,…
 On-hand stock (at the end t) =Max{0, On-hand (at the end t-1) +
Scheduled/Planned receipts (in t) – Gross requirement (in t)}.
 MRP system using inventory master file to determine the
quantity available for use in a given period
 MRP Computation: Net Requirements
Net requirements (t) = Gross requirements (t) – On-hand stock (at
the end of t-1) – scheduled receipts (t) > 0  order.
Otherwise, no order.
 Suppose a master schedule shows that the company plans to make 10
tables in February. It obviously needs 10 tops and 40 legs ready for
assembly at the beginning of February. These are the gross requirements.

 The company needs 40 table legs by the beginning of February, but if it

already has 8 in stock and an order of 10 that is due to arrive in January,
the net requirement (Feb) is for 40 – 8 – 10 = 22.
MRP computation: Procedure
 MRP Computations: Order Lot Size
 Fixed Order Quantity (FOQ):

 Periodic Order Quantity (POQ):

 Lot-for-Lot Order Quantity (L4L):

 MRP Computations
Zero-Level
Week 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 50 150 50 100 100
On hand 400 400 400 350 350 350 200 200 200 150 50 50 50
Net requirements -- -- -- -- -- -- -- -- -- -- -- 50
Planned order receipts 50
Planned order releases 50
Lead time = 3 weeks

Level 1
Week 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 50
On hand 20 20 20 40 40 40 40 40 40 40
Net requirements 10
Planned order receipts 20
Planned order releases 10
Lead time = 4 weeks
 Example

 Semple-Brown assemble kitchen tables using bought-in

parts of four legs and a top. These have lead times of two
and three weeks respectively, and assembly takes a week.
The company receive orders for 20 tables to be delivered in
week 5 of a planning period and 40 tables in week 7. It has
current stocks of 2 complete tables, 40 legs and 22 tops.
When should it order parts?
 Example
The orders give the following production schedule for
finished tables – shown as the gross requirements for level 0
items. Subtracting the current stock of finished tables gives
the net requirements
Level 0 – kitchen tables
Week 1 2 3 4 5 6 7
Gross Requirement 20 40
Opening Stock 2 2 2 2 2
Net Requirements 18 40
Start Assembly 18 40
Scheduled Completion 18 40
Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes
 Example
The ‘scheduled completion’ shows the number of units that
become available in a week, which is the number started the lead
time earlier.
Find gross requirements
 For level 1 items – which are legs and tops. In week 4 there is a
net requirement of 18 tables, which translates into a gross
requirement of 18 × 4 = 72 legs and 18 × 1 = 18 tops.
 So we can find the gross requirements for level 1 materials as:
 legs: 18 × 4 = 72 in week 4, and 40 × 4 = 160 in week 6
 tops: 18 in week 4, and 40 in week 6.
 Example

 Subtracting the stock on hand from these gross requirements gives

the net requirements. To make sure the parts arrive on time, they
must be ordered the lead time in advance – which is 2 weeks for
legs and 3 weeks for tops.

Level 1 –legs
Week 1 2 3 4 5 6 7
Gross Requirement 72 160
Opening Stock 40 40 40 40
Net Requirements 32 160
Place order 32 160
Scheduled deliveries 32 160
 Example
Level 1 –tops
Week 1 2 3 4 5 6 7
Gross Requirement 18 40
Opening Stock 22 22 22 22 4 4
Net Requirements 36
Place order 36
Scheduled deliveries 36

There are no more of levels material, so we can finalize the time tables of events as
• Week 2: order 32 legs

• Week 3: order 36 tops

• Week 4: order 160 legs and assemble 18 tables

• Week 6: assemble 40 tables

Level 0 – kitchen tables
Week 1 2 3 4 5 6 7
Gross Requirement 20 40
Opening Stock 2 2 2 2 2
Net Requirements 18 40
Start Assembly 18 40
Scheduled Completion 18 40

Level 1 –legs
Week 1 2 3 4 5 6 7
Gross Requirement 72 160
Opening Stock 40 40 40 40
Net Requirements 32 160
Place order 32 160
Scheduled deliveries 32 160
Level 1 –tops
Week 1 2 3 4 5 6 7
Gross Requirement 18 40
Opening Stock 22 22 22 22 4 4
Net Requirements 36
Place order 36
Scheduled deliveries 36
 Benefits of MRP
 Low levels with savings in capital, space, warehousing, and so on
 Higher stock turnover
 Better customer service – limit delays caused by shortages of
materials
 More reliable and faster delivery times
 Less time spent on expediting and emergency orders
 Ability to track material requirements
 Ability to evaluate capacity requirements
 MRP schedules can be used for planning other logistics activities.
 Issues of MRP
 Reduced flexibility to deal with changes
 Needs a lot of detailed and reliable information
 Systems may become very complex
 The order sizes suggested by MRP could be inefficient
 MRP may not recognize capacity and other constraints
 Could be expensive and time consuming to implement
 Risks: quantity & lead time
 Capacity limit
2. Just-In-Time (JIT)
 PRINCIPLES OF JUST-IN-TIME
 JUST-IN-TIME (JIT) systems organize materials to
arrive just as they are needed.

 By coordinating supply and demand, they eliminate

stocks of raw materials and work in progress.
 JIT’s View of Stock
 Stocks are held to cover short-term mismatches between
supply and demand.
 These stocks serve no useful purpose – they only exist
because poor co-ordination does not match the supply of
materials to the demand.
 As long as stocks are held, there are no obvious problems and
no incentive for managers to improve the flow of materials.
 Then operations continue to be poorly managed, with problems
hidden by stocks.
 The real answer is to improve operations, find the reasons for
differences between supply and demand, and then take
whatever action is needed to overcome the differences.
Inventory Hides Problems

Bad
Design
Lengthy Poor
Setups Quality
Machine
Inefficient Unreliable
Breakdown
Layout Supplier
Lower Levels of Inventory to Expose
Problems

Bad
Design
Lengthy Poor
Setups Quality
Machine
Inefficient Unreliable
Breakdown
Layout Supplier
 Minimizing Waste: JIT Production
WHAT IT IS WHAT IT DOES

• Management philosophy • Attacks waste

• Exposes problems and bottlenecks
• “Pull” system though the plant
• Achieves streamlined production

WHAT IT REQUIRES WHAT IT ASSUMES

• Employee participation
• Industrial engineering/basics • Stable environment
• Continuing improvement
• Total quality control
• Small lot sizes
 Stock
levels
with
different
types of
control
 Wider Effects of JIT
 Stocks: As we have seen, organizations hold stocks to cover short-term
differences between supply and demand. JIT assumes that these stocks
actually hide problems. Organizations should find the reasons for
differences between supply and demand, and then take whatever action
is needed to remove them.

 Quality: Organizations have defined some arbitrary level of acceptable

quality, such as, ‘we will accept one defect in a hundred units’. JIT
recognizes that all defects have costs, and it is better to find the cause
and make sure that no defects are produced (supporting the view of total
quality management).

 Suppliers: JIT relies totally on its suppliers – so it supports the view of

customers and suppliers working closely together in long-term
partnerships pursuing common objectives.
 Wider Effects of JIT
 Batch size: Operations often use large batch sizes, as they reduce
set-up costs and disruptions. But if demand is low, the products
made in large batches sit in stock for a long time. JIT looks for
ways of reducing the batch size so that it more closely matches
demand.

 Lead times: Long lead times encourage high stocks, as they have
to cover uncertainty until the next delivery. JIT aims for small,
frequent deliveries with short lead times.

 Reliability: JIT is based on continuous, uninterrupted production, so

all operations must be reliable. If, say, equipment breaks down,
managers must find the reasons and make sure it does not happen
again.
 Wider Effects of JIT

● Employees: Some organizations still have a friction between

‘managers’ and ‘workers’. JIT argues that this is a meaningless
distinction, as the welfare of everyone depends on the success of
the organization. All employees should be treated fairly and
equitably.
 JIT is not just a way of minimizing stocks. By coordinating all
activities, it increases efficiency and eliminates waste.
 Key Elements of JIT
 One problem with JIT is that it only works well in certain types of
organization. The most successful users of JIT are large-scale assembly
plants, which make virtually identical products in a continuous process.
● Every time there are changes to a process, or it switches from making
one product to making another, there are delays, disruptions and costs.
JIT says that these changes waste resources and should be eliminated.
In other words, JIT needs a stable environment where a process makes
large numbers of a standard product, at a fixed rate, for a long time.
●This stable environment can reduce costs by using specialized
automation. Then JIT works best with high volume, mass production.
 Key Elements of JIT
 The level of production must allow a smooth and continuous flow of
products through the process. Each part of the process should be fully
utilized, so the process is likely to be a well-balanced assembly line.

 Deliveries of materials are made directly to the assembly line at just the
time they are needed. Suppliers must be able to adapt to this kind of
operation. It would be impractical to bring each individual unit from
suppliers, so the next best thing is to use very small batches.

 If small batches are used, reorder costs must be reduced as much as

possible or the frequent deliveries will be too expensive.
 Key Elements of JIT
 As there are no stocks to give safety cover, any defects in materials
would disrupt production. Suppliers must, therefore, be totally reliable
and provide materials that are free from defects.

 If something goes wrong, people working on the process must be able to

find the cause, take the action needed to correct the fault, and make
sure that it does not happen again. This needs a skilled and flexible
workforce that is committed to the success of the organization.
 ACHIEVING JUST-IN-TIME
OPERATIONS
 Push and pull systems

 Kanbans

 Benefits and disadvantages of JIT

 Push and Pull Systems
The success of JIT is not solely based on its idea of organizing
activities at just the time they are needed, but on its
description of how to achieve this. It works by ‘pulling’
materials through the process.

When one operation finishes work on a unit, it passes a

message back to the preceding operation to say that it needs
another unit to work on.
The preceding operation only passes materials forward when
it gets this request.
 Kanbans ( 看板 )
JIT needs some way of organizing the flow of materials that are
pulled through the process.

The simplest system moves materials between two stages in

containers.
When a second stage needs some materials, it simply passes the
empty container back to the previous stage as a signal to fill it
 Kanbans ( 看板 )
■ KANBANS are cards that control the flow of materials through JIT
operations.

■ They arrange the ‘pull’ of materials through a process.

 There are several ways of using kanbans. The most common system uses
two distinct types of card, a production kanban and a conveyance kanban.
 Production Kanban: signals the need to produce more parts
 Conveyance Kanban (also called a “Move" or a “Withdrawal” kanban):
signals the need to withdraw parts from one work center and deliver them to
the next work center
Kanban Cards
 Example:
Conveyance Kanban Card

Part number to produce: M471-36 Part description: Valve Housing

Lot size needed: 40 Container type: RED Crate

Card number: 2 of 5 Retrieval storage location: NW53D

From work center: 22 To work center: 35

 Example:
Production Kanban Card
Part number to produce: M471-36 Part description: Valve Housing

Lot size needed: 40 Container type: RED crate

Card number: 4 of 5 Completed storage location: NW53D

From work center: 22 To work center: 35

Materials required:
Material no. 744B Storage location: NW48C
Part no. B238-5 Storage location: NW47B
 Single-Card Kanban System
Receiving post
Kanban card for Storage
product 1 area
Kanban card for
product 2

Empty containers

Assembly line 1

O2

Fabrication
cell
O1 O3
Assembly line 2

Full containers
O2
 Single-Card Kanban System
Receiving post
Kanban card for Storage
product 1 area
Kanban card for
product 2

Empty containers

Assembly line 1

O2

Fabrication
cell
O1 O3
Assembly line 2

Full containers
O2
 Single-Card Kanban System
Receiving post
Kanban card for Storage
product 1 area
Kanban card for
product 2

Empty containers

Assembly line 1

O2

Fabrication
cell
O1 O3
Assembly line 2

Full containers
O2
 Single-Card Kanban System
Receiving post
Kanban card for Storage
product 1 area
Kanban card for
product 2

Empty containers

Assembly line 1

O2

Fabrication
cell
O1 O3
Assembly line 2

Full containers
O2
 Single-Card Kanban System
Receiving post
Kanban card for Storage
product 1 area
Kanban card for
product 2

Empty containers

Assembly line 1

O2

Fabrication
cell
O1 O3
Assembly line 2

Full containers
O2
 Single-Card Kanban System
Receiving post
Kanban card for Storage
product 1 area
Kanban card for
product 2

Empty containers

Assembly line 1

O2

Fabrication
cell
O1 O3
Assembly line 2

Full containers
O2

Figure 8.4 – Single-Card Kanban System

 Single-Card Kanban System
Receiving post
Kanban card for Storage
product 1 area
Kanban card for
product 2

Empty containers

Assembly line 1

O2

Fabrication
cell
O1 O3
Assembly line 2

Full containers
O2
 W

W
W

W
The Main Features of Kanban Systems
 A message is passed backwards to the preceding workstation to start
production, and it only makes enough to fill a container.
 Standard containers are used which hold a specific amount. This
amount is usually quite small, and is typically 10% of a day’s needs.
 The size of each container is the smallest reasonable batch that can be
made, and there are usually only one or two full containers at any point.
 A specific number of containers and kanbans is used.
 The stock of work in progress is controlled by the size of containers and
the number of kanbans.
 Materials can only be moved in containers, and containers can only be
moved when they have a kanban attached. This gives a rigid means of
controlling the amount of materials produced and time they are moved.
 While it is simple to manage, this system makes sure that stocks of
work in progress cannot accumulate.
 CONWIP
 CONWIP is a pull system that employs a single global set of cards to control total
WIP anywhere in the system.
 Material enters a CONWIP system only when demand occurs, and the raw material
receives a card authorizing entrance; the same card authorizes the material to move
through the system and complete production.
 When the final product leaves the system, the card is released, allowing new
material to enter the system as new demand occurs.
 Notice that WIP is not controlled at the individual workstation level in the CONWIP
system. Total WIP in the system is a constant (thus the name CONWIP), for the
cards limit the total amount of work that can be anywhere in the system.
 The Kanban system pulls work everywhere (between every pair of workstations),
while the CONWIP system only pulls work at the beginning of the line.
 Advantages:
 WIP is both clearly observable and under direct management control
 CONWIP requires fewer cards than KANBAN, the cards relate to lines not parts.
 CONWIP MECHANISM

Upstream side Downstream side

Flow of Materials

B1 B2 B3
R.M.I F.G.I

M1 M2 M3 M4 Demand

Flow of CONWIP card

(information)

R.M.I – Raw Material Inventory M1, M2,M3,M4 - Machines

F.G.I – Finished Goods Inventory B1, B2,B3 – Bins

 Benefits of JIT
 Lower stocks of raw materials and work in progress
 Shorter lead times
 Shorter time needed to make a product
 Higher productivity
 Higher equipment capacity and utilization
 Simplified planning and scheduling
 Benefits of JIT

 Less paperwork
 Improve quality of materials and products
 Less scrap and wastage
 Better morale and participation of the workforce
 Better relations with suppliers
 Emphasis on solving problems in the process.
 Disadvantages of JIT
 High risks of introducing completely new systems and operations
 Initial investment and cost of implementation
 Long time needed to get significant improvements
 Reliance on perfect quality of materials from suppliers
 Inability of suppliers to adapt to JIT methods
 Need for stable production when demand is highly variable or
seasonal
 Reduced flexibility to meet specific, or changing, customer demands
 Difficulty of reducing set-up times and associated costs
 Lack of commitment within the organization
 Lack of co-operation and trust between employees
 Problems linking JIT to other information systems, such as accounts
 Need to change layout of facilities
 Increased stress in workforce
 Inability of some people to accept devolved responsibilities.