1. OMG 402 - Operations Management Spring 1997 CLASS 10: Process and Inventory Control (2) Harry Groenevelt

2. 2 Agenda Recap Set-up Times and Just-In-Time Production Control Techniques –Production Control Decisions –Push Systems and MRP –Pull Systems and Kanban Summary

3. 3 Recap Philosophy of JIT: “produce only when products are needed, in the quantities needed” Goals: –small batch sizes –‘smoothed’ production for all products (internal production and supplier’s production) –low inventories –problem visibility and continuous improvement –elimination of waste

4. 4 Set-up Times and Just-In-Time (JIT) But smaller batches also imply less production per unit time (remember the traffic light?) How small can batches become before we no longer meet demand? The same question in some production environments: how short can a ‘production cycle’ be?

5. 5 Set-up Times and Just-In-Time (JIT) Example: A Juice Bottler –five types of juice –eight hour set-ups between batches of each type –steady demand: 1600 (six-)packs/week for each juice –steady production: 9600 packs/week Questions: –How small can batches be and still meet demand? –How long between production runs of apple juice? Orange juice?...

6. 6 Example: 5 juices Total Demand (D) = 5*1600 packs/wk = 8000 packs/wk Single Machine: Production rate (C) = 9600 packs/wk –Changeover (setup) time between juices = 8 hrs. (0.2 wks in a 40-hour week) apple six-pack cranberry six-pack tropical six-pack grape six-pack orange six-pack

7. 7 Cyclic Production Schedule A production cycle consists of a setup followed by a production run for each of the products The cycle time (T) is the time required to complete a production cycle Note: in practice, “cycle time” has many definitions; this is just one of them! Juice 1 setup Juice 2Juice 3 setup Juice 4Juice 5 setup Juice 1Juice 2 setup 0.2 wk cycle time T

8. 8 Cyclic Production Schedule S = total setup time per cycle = ________ In terms of the cycle length T: demand for each juice per cycle = ________ total demand per cycle = ________ production time needed to fill demand per cycle = _______ Juice 1 setup Juice 2Juice 3 setup Juice 4Juice 5 setup 0.2 wk cycle time T 0.2 wk

9. 9 D = total demand (packs/wk) C = production rate (packs/wk) S = total setup time/cycle (wk) T = cycle time (wk) JIT: Minimum Cycle Time We can satisfy demand as long as: cycle time  time to fill demand during cycle + total set-up time or

10. 10 JIT: Minimum Cycle Time minimum batch size for one juice = (1600 packs/wk)(T min ) = 9600 packs average inventory for one juice < 9600/2 packs = 4800 packs (why “<”) average total inventory < 5*4800 packs = 24,000 packs

11. 11 JIT: Product Cycling inventory for juice (with 6-week cycle) AppleCranberryTropicalGrapeOrange

12. 12 Total Set-Up Time (S)Demand / Prod. rate (D/C) minimum T 1 JIT: Intuition for T min minimum T D = total demand (packs/wk) C = production rate (packs/wk) S = total setup time/cycle (wk) T = cycle time (wk)

13. 13 Inv (packs) juice (packs)(packs)(wks)(hrs) Setup TimeCycle TimeLot SizeAvg Inv PerTotal Avg 869600400020000 434800200010000 32.25360015007500 21.5240010005000 0.50.3756002501250 0.250.1875300125625 JIT: Minimum Cycle Times Impact of Setup Time Reductions

14. 14 Insights for Product Cycling Insight 1: set-up time reduction enables reductions in cycle length and inventory, increases flexibility and reduces lead times. Insight 2: Cycle length (and average inventory) explode as the ratio of demand to production rate (D/C) nears 1.

15. 15 Production Control Techniques Outline Push vs. Pull Example of Push: MRP Example of Pull: Kanban

16. 16 Deciding ‘when’ and ‘how much’: Push vs. Pull Push: production follows a schedule to meet demand –examples: making lasagna for a dinner party... Pull: production triggered by demand-driven change in system status –examples: purchasing milk and cereal...

17. 17 Bill of Materials (BOM) Master Production Schedule Lead Times Inventory Status planned orders order releases noticesreports Example of Push: Material Requirements Planning (MRP)

18. 18 Example of Push: Materials Requirements Planning (MRP) Generates coordinated material plans –issues work orders to the shop(s) –issues purchase orders to vendors –tracks and projects inventories –generates plans for future orders –flags projected delays or early arrivals

19. A C (1) B (2) Bill of Materials (BOM): Need to begin producing 10 product As in week 5 lead times for B: 2 weeks for C: 3 weeks begin production of ____ B’s in week ____ begin production of ____ C’s in week ____ level 0 level 1 level 2 Material Requirements Planning Example One ‘A’ built from two B’s and one C. Each B built from one C:

20. 20 Material Requirements Planning What are MRP’s Strengths? –planning for demand fluctuations –coordinates complex activities and materials requirements Successors to MRP: –MRP II, SAP (and others) coordinate resources, inventory, financial reporting, and other functions

21. 21 Material Requirements Planning What are MRP’s Weaknesses? –lead time inflation –codifies inefficiencies –costs (hardware, software, time) –data glutton –lack of flexibility

22. 22 station 1 station 2 (see Schonberger article for more details) Example of Pull: Kanban Developed by Toyota Named after cards (Kanbans) used to control inventory Simplest version (HP Video): “build and move to the hole” –station 1 only moves material when station 2 empty; –station 1 only builds when station 1 empty.

23. 23 Uses of the Kanban System Authorization for production is the demand from downstream Tight control over inventory by limiting: –number of Kanban cards –size of standard container associated with each card (a card could represent 1, 2, 10 or 100 parts) Balances flows in production system: everyone works at the bottleneck rate

24. 24 Kanban at Work What happens when... –a problem halts production upstream? –a problem halts production downstream? –downstream demand increases?

25. 25 Example of Pull: Kanban What are Kanban’s Strengths? –Simple to design and run (but not necessarily simple to implement!) –Reduces impact of demand fluctuations –Makes queues of work visible –Exposes problems –Provides incentives for continuous improvement

26. 26 Example of Pull: Kanban What are Kanban’s limitations? –Does not plan for demand fluctuations –Only works for standard products (not with “design to order”) –Difficult to coordinate complex tasks –Must be accompanied by worker empowerment, training, JIT environment

27. information material MRP Kanban Summary MRP is a push system, Kanban a pull system Many systems combine push and pull elements (i.e. push for aggregate plan, pull on shop floor) Either ‘push’ or ‘pull’ can be JIT. Hybrid systems can avoid the weaknesses of each