Level II

A Study of Production Management

(Manufacture)

By Angela Lee

University of Salford Research Unit January 1999

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1. Introduction. The economic success of a manufacturing firm depends upon their ability to identify the needs of its customers, to quickly create the subsequent products and to produce them at a low cost. Achieving these goals is not solely a marketing, a design or a manufacturing problem, but rather a management problem involving all of these functions. Production Management involves the planning, organising and controlling of the whole production process. The interrelation of these activities and operations involved in producing the goods and the services is called a production system. Figure 1 illustrates a schematic diagram of a production system with its six principal components, and success is a direct result of the efficient control of these components [Evans, 1993].

Figure 1: Model of a production system [Evans, 1993]:

Inputs: Materials. Capital. Equipment. Personnel. Information. Energy. Conversion/creation processes: Manufacturing operations. Service operations. Outputs: Finished goods and services.

Suppliers

Customers

Decisions. Managers Feedback.

This study aims to explain the principles behind current manufacturing philosophies, in particular Materials Requirement Planning (MRP), Just-In-Time (JIT) and Optimised Production Technology (OPT). These philosophies aim to improve the production system in distinctive ways, each placing an emphasis upon different components. 2. Materials Requirements Planning (MRP). In manufacturing situations, the demand for raw materials, components, subassemblies etc is dependent upon the production plan for the final product. It is therefore possible to determine how many parts or components will be needed in each time period once the production requirements for the final product is established. MRP is a computerised system that exploits this information of the dependence on demand, by managing inventories and controlling the production lot-sizes of the numerous parts that go into the making of the final product. MRP is the most widely used production management system in the UK [Sapoutzis, 1995], and is more commonly regarded as a push system. It is simply a method of projecting the requirements of the individual components of a product to determine

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three major functions: control of inventory levels, assignment of priorities for components and the determination of capacity requirements [Buffa et al, 1987]. Therefore, the calculations performed by MRP, plan order releases for purchased parts and manufactured components. In this fashion, MRP assists operation managers in planning and controlling inventories by answering the basic questions of what to order, how much to order, when to order and when the delivery should be scheduled. This is achieved by looking at future requirements for the finished products and it uses this, and other information, to produce statements on sub-assemblies, components and raw materials necessary to complete the end products. In short, the system determines the requirements and schedule for (1) manufacturing the components and subassemblies and or, (2) purchasing the materials needed for meeting the requirements of the master production schedule. The term push describes the fact that the statements of requirements are made according with the agreed delivery dates and these are set at the start of the process, as to meet relevant schedules [Hill, 1991]. In this way, the appropriate components are pushed into the process as to produce the right quantities, and more importantly, at the right time. 2.1 Aims. Delmar [1985] describes that there are three main goals in MRP as: 1) 2) 3) Minimise inventory investment. Maximise the efficiency of the production system. Improve customer service.

In order to minimise the investment in inventories (an idle resource that is waiting to be used) the correct resources should be ordered as and when required by the product specification. Furthermore, the right quantities must be ordered, to meet the production schedules, taking into account trade-offs between the order of quantity and total unit costs. This will result in a reduction of holding costs and so the efficiency of the production system will improve, and hence, customer satisfaction will flourish too because time and cost will be greatly reduced. The above should be carried out by the production planning department. Careful planning of the production system is required to improve efficiency. Such planning should first look at the available resources and capacity to determine the production schedules. The overall managerial objective in using MRP is to avoid inventory stockouts so that production runs smoothly, according to plans, and to reduce investment in raw materials [Buffa & Sarin, 1987]. 2.2 Benefits. The benefits of an MRP system are obvious. The only feasible option is to have a computerised system in play when dealing with large numbers such as in a manufacturing industry [Buffa & Sarin, 1987]. This is clearly evident if the schedule changes due to market shifts. A computerised MRP system can immediately reflect the effects of changed order quantities, cancellations, delayed material deliveries and so on. In addition, a manager can change the master schedule and quickly see the effects on capacity, inventory status, or the ability of the system to meet the promise to their customers.

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Details of inputs and outputs of an MRP system [Hill, 1991]:

Forecasts Known orders

Master Production Schedule (MPS) Details, quantities and product types to be provided in each time period in the future. Inventory status records. Input Production capacity manpower and equipment availability.

Product structure records.

Contains inventory balances, freestock positions, on-order details, lot-sizes, lead-times and safety stocks.

Contains bills of materials (BOM) and how each product is produced (the routing file).

MRP SYSTEM.

Input

Explodes BOM per MPS to give gross inventory requirements, nets out inventory levels and issues the outputs below; Outputs

Input

Materials and capacity plans.

Planned order releases.

Planning adequate capacity and materials in line with requirements while responding to under and over provision.

For purchasing and shop scheduling giving quantity of items that must be available in each time period.

Purchase orders.

Work orders.

Reschedule notices.

Quantity and time period for orders to be placed with suppliers.

Quantity and time periods for work orders to be released to the shop.

Details of any replanning and rescheduling due to unforeseen problems.

2.2 Manufacture Resource Planning (MRP II). After the development of the MRP system, it became evident that its concept had far more potential than merely for the planning of materials. As such, managers began to expand the concept to include other manufacturing resources allocated to production, particularly financial resources. MRP II adopts similar procedures as MRP. It is an integrated software tool for managing, predicting and controlling a companys resources and investments [Evans, 1993]. Since materials and production requirements can be determined by MRP, these requirements can in turn be converted to pounds. In this way, inventory, labour, materials etc can be costed, this standpoint is typical and favoured in the manufacturing industry. Consequently, the production and finance teams should work together to ensure that the desired resources are made available to meet the production 4

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requirements for the final products. MRP II also facilitates co-ordination with marketing, which is usually lacking in other systems. The production planner and the marketing product manager can liase to determine the effect of the changing market demand on production, and can include expediting or the postponement of some orders. MRP II, therefore, provides a convenient vehicle for co-ordinating the efforts of the manufacturing, finance, marketing, engineering and personnel departments. It converts a marketing statement of demand into a workable production plan. Since it is too computerised, mangers can predict the implications of changes. For example, if the sales forecasts provided by marketing cannot be met with existing capacities, the financial and other implications, can be evaluated using the stimulation capabilities of the system.

Structure of MRP computer programs [Browne et al, 1988]:

Demand management. Forecasts. Customer orders.

Production planning.

Resource requirements planning.

Master production scheduling. BOM control. Materials requirements planning.

Rough cut capacity planning. Capacity requirements planning.

Inventory control.

Purchasing.

Production activity control

Dispatching.

Input/output control.

3. Just-In-Time (JIT). Efficiency, in manufacturing terms, is the ratio of output to input. The output of product per hour of production is production efficiency, or productivity. Anything that delays production, interrupts material flow or does not contribute to production, lowers efficiency. Anything that lowers efficiency is waste. JIT is a philosophy. A philosophy that is considered as a pull system, whose main objective is to eliminate waste in all possible forms including unnecessary inventory, scrap in production and any wasteful activities in order to reduce costs and improve quality. It is important here to note that outside Japan JIT is also known as lean production [Anderson, 1994]. Since its success in helping Japan become a major manufacturing power [Plossl, 1987; Evans, 1993; Buffa & Sarin, 1987], it has become

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the aim of many western manufacturing companies and has been implemented by many but with varying degrees of success. The philosophy aims to continuously improve all areas of the manufacturing process, from design to production, and from supplier related aspects to customer related aspects [Buffa & Sarin, 1987]. Moreover, to satisfy the customer by supplying what they need and when they need it, hence remaining competitive and thus profitable, to produce the right product or part, at the right quantity and the right time [McMahon & Browne, 1993]. To achieve this ultimate target of excellence in all areas, the following principles should be religiously adhered to [Browne et al, 1988]: Zero defects: Under the JIT philosophy mistakes are not inevitable and such mistakes are recognised under its principles. However, every mistake and defective product is a reason to look at the whole production process more closely to find out why it is not foolproof. By investigating every defect and its cause, the process can gradually be improved, and hence get closer to being perfect. Zero set-up times: The reduction of set-up times will lead to significant reductions in the level of inventory. This in turn improves the production process for two reasons; 1) inventory need not accumulate at work stations into huge lots only to be transferred later onto other work stations and; 2) with quick changeovers production becomes flexible, it can be scheduled to match varying demand for different product mix. Therefore, long and expensive set-ups will not dictate the production runs. Zero inventories: By reducing inventory, production is able to respond effectively to short term variations in market demands. Consequently, highly competent JIT plants are able to assemble in a ratio of 1:1, or rather if two different models of a product are being made then they can be assembled alternating from one to the other. The main advantage with a mixed-modelled assembly is that each day the amount of products made is close to the amount of products sold that day. This in turn avoids the usual cycle of a build-up in inventory of a given model, followed by depletion to the point of lost sales when the next model builds up. Also, by reducing the inventory investment, lower expenditures for facilities, equipment and labour is also realised. Therefore, leading to a better quality product, less wasted material, fewer labour hours on rework, and hence higher productivity. Zero handling: The layout of the production process is laid out in an economical manner, a product-based layout, as to introduce a reduction in queue time. Zero breakdowns: Machine maintenance is taken very seriously in JIT. Preventative maintenance is the key to make sure that machines do not break down. Machines are consequently programmed to operate below their full capacity so that there is time to maintain the equipment and more importantly, and to reduce the unnecessary wear and tear that is more common to machines that continuously run at full speed. What the companies loose in production time, they more than make up in reduced machine breakdowns, lower yields and less rework. Zero lead-time (the time between the placing of an order and its receipt in the inventory system): To achieve very low inventories and very small batch sizes, the lead-time for the manufacture of a product has to be greatly reduced. Long planning lead times which are characteristics of traditional planning systems (MRP) are based on the longest cumulative lead-time. These long lead times force

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the manufacturing system to rely on forecasts and to commit to manufacture a product before the, and in anticipation, of customer order. With JIT, items are delivered or produced only when they are required, to produce a smooth and rapid flow of products from the time the materials are purchased and received, until the time the final product is shipped to the customer. Therefore, inventories are minimised. Ideally, the number of parts produced in a plant or purchased from outside suppliers at any one time should be just enough to produce one unit of the final product. This procedure is supported by means of a kanban system. 3.1 Kanban: The way that materials and products are moving from workstation to workstation within a JIT environment is governed by the kanban system of shop floor control. The kanban (Japanese for record card) looks at the manufacturing process from the perspective of the finished item. The technique controls the initiation of production and the flow of material with the aim of getting the right quantity of the right items where they are needed at the time they are needed. JIT is described as a pull system, or a demand feeding process, in the sense that the material is being pulled through the system, starting from the last operation on the line demanding something from the preceding operation, and so on until the supplier is reached. Such a supplier is expected to be able to supply in small batches several times a day as and when material is required. The simple kanban system of inventory control is an integral part of the JIT system of production. The beauty of it is in its simplicity. A kanban can be a card of two types: a withdrawal or a production ordering kanban. The withdrawal kanban shows the quantity of the items that the subsequent process should withdrawal from the preceding one. The production ordering kanban shows the quantity that the preceding process should produce. These cards are used within the plant and within suppliers plants, hence ordering and delivering can be co-ordinated as to reduce inventories. 3.2 Process/teamwork. The JIT strategy enlists everyone being involved in productivity improvement. It recognises that maximum productivity depends upon maximising assets, and human resource is a companys most important asset [Ulrich & Eppinger, 1995]. Therefore, this strategy attempts to release the latent capacity of each employee to attack productivity. All personnel are expected to contribute to improving product quality, reducing lead times and eliminating waste. Teamwork is the answer. In a manufacturing environment, one persons problem is in turn everybodys problem. For example, when an operator discovers a problem with his/her machine, or sees something wrong anywhere in the factory, they have the right to stop the whole production line if necessary, unlike that of other factories where only the manager possesses this power. Then everyone will then leave their positions and try to help solve the problem. As a consequence, each individuals skills are harnessed to improve the whole production system and so the process is continuously improved, little by little. Consequently, the emphasis in the entire manufacturing plant

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shifts from detecting problems to solving them. Moreover, finding problems are easy but it is fixing them that are difficult. Solutions for JIT are solutions that improve the whole. Problems are not solved in one department only to create new problems elsewhere. The whole organisation is enlisted on solving problems and it is an unrelenting situation because new and different problems always occur. However, not only are the operators involved in the whole production process, the suppliers and even the customers are included as well. Since customers and suppliers have great influence on manufacturing flow and productivity, the JIT strategy develops tactics to enlist them into the job as well. Suppliers are encouraged to deliver on time, in small quantities and with zero defects. A good partnering relationship is essential here. In addition, customers are encouraged to order in small quantities to meet their short-term needs, and in return they will benefit in reducing their inventory costs too. Therefore, communication with both suppliers and vendors must improve to encompass short lead times and high service levels as to harness the full benefits of JIT. 3.3 Implementation. JIT is a strategy that requires dedication to perfection at all levels in the manufacturing process. It is difficult to achieve and it takes a long time to reap significant gains [Evans, 1993]. It must be noted that the philosophy is not a shortterm program or project, but a lifetime avocation; it is not a goal, but a journey. Some organisations have failed in their attempts to implement JIT, the greatest attribute being that it was not understood as a philosophy that covers all aspects and departments in an organisation, as attempts were made to introduce parts of JIT here and there. Failure is adamant since JIT is a close knitted web of techniques and ideas that support each other, and all of them play an important role for the systems success. The philosophy has been developed to suit perfectly the type of production called mass production or repetitive manufacturing. It requires a relatively stable pattern of demand, and is easier to implement in factories that do not produce significantly different products. Also, such a pull production philosophy requires a high degree of repetitiveness and fixed routings and therefore, is not universally applicable. However, nearly all companies have some degree of repetitiveness, and JIT can be effectively applied to such, while the remaining products or parts can be controlled using traditional methods.

Effects of JIT production [Schonberger, 1982]:

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Heightened awareness of problems and problem causes.

Reduced buffer inventories and/or workers. Fast feedbacks on defects.

Ideas for cutting lot sizes.

Ideas for improving JIT delivery performance.

Ideas for controlling defects

Lot size reductions

JIT production.

Scrap/quality control.

Smoother output rates.

Less inventory in the system.

Less indirect cost for: interest on idle inventory, space and equipment to handle inventory, inventory accounting and physical inventory control.

Fewer rework labour hours.

Less material waste.

Less material, labour and indirect inputs for the same or higher output + higher productivity. Less inventory in the system = faster market response, better forecasting and less administration.

4. Optimised Production Technology (OPT). OPTs objective is to schedule production so that the production output is maximised. The key distinctive feature is its ability to identify and isolate bottleneck operations, then to focus on these bottlenecks to determine production plans and schedules for the entire shop. This simple idea could lead to the better utilisation of manufacturing resources, resulting in greater productivity and lower costs. Evans [1993] perceives that OPT can be viewed form several perspectives. These being: as a philosophy for scheduling, as a language for modelling manufacturing operations, as a software system for manufacturing resource planning, or as a tool for co-ordinating the efforts of marketing, engineering and manufacturing to realise the common goals of the organisation. Moreover, Hill [1991] describes OPT as a sound aid to achieve the only goal in any manufacturing organisation, and that goal is to make money. 4.1 The ten rules of OPT. To achieve this goal, Hill [1991] goes on to suggest that there are three important factors that have to be carefully considered. They are throughput (rate at which the manufacturing system generates money through sales), inventory and the operational expense (amount in which is spent to turn the inventory into sales). These in turn feed into the ten rules of its philosophy [Hill, 1991]: 1) Balance flow, not just capacity: Capacity and a smooth flow of materials should be considered and maintained simultaneously, which is similar to the JIT approach. 2) The level of utilisation of a non-bottleneck is determined not by its own potential but by some other constraint in the system: The throughput (rate of which the manufacturing system generates money through sales) of a system is limited by

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the bottleneck (a resource whose capacity is equal to or less that the demand placed upon it). Therefore, it is necessary to control the inputs into the system since it should be the bottleneck that dictates the throughput of the system. If nonbottlenecks resources produce more than bottlenecks can absorb, or more than the demand dictates, then inventory builds up and operating expenses are increased. 3) Utilisation and activation of a resource are not synonymous: This rule defines utilisation as the degree to which a resource should be used in order to achieve the strategic goal of profitability, and activation as the degree to which the resource can be used. 4) An hour lost at a bottleneck is an hour lost for the entire system: Bottleneck resources should be utilised 100% at all times: breaks should not occur and set-up times must be reduced. 5) An hour saved at a non-bottleneck is just a mirage: Bottleneck resources limit the capacity of the system, hence, saving non-bottleneck time does not effect the efficiency of the system. 6) Bottlenecks govern both the throughput and the inventory in the system: Inventories can be controlled where the bottlenecks are located, and which determines the throughput. 7) The transfer batch may not, and many times should not, be equal to the process batch: The transfer batch is the amount of product transferred from one operation to another, and the process batch being the amount processed at any operation between transfers. The numbers should be flexible, since it is essential for the flow of product from raw material to the finished goods. 8) The process batch should be variable, not fixed: When there is a different number of parts to an object that are to be manufactured on different equipments, the process batch needs to be varied in order to maintain a smooth and rapid flow, and hence reducing inventory. 9) Schedules should be determined by looking at all constraints simultaneously. Lead-times are the result of a schedule and cannot be predetermined: Lead-times depends upon the sequencing (the sequence in which different parts, with different processing times are being loaded), and so cannot be determined in a capacity bound situation unless the capacity is considered. 10) The sum of the local optima is not equal to the optimum of the whole: OPT seeks to measure the performance of the plant as a whole based on its raw material input and the final product output. 4.2 Implementation. OPT is a two part approach to production planning and scheduling: conceptual and software based. Furthermore, the implementation of the ten rules theory alone can bring substantial benefits to an organisation, and the software is used to produce realistic schedules. The software package for OPT is similar to an MRP/MRP II system [Muhlemann et al, 1992]. It can provide a detailed description of the production system in a product network that reflects the reality of the manufacturing process. Sales forecasts are taken and, with product routing of bills of materials data, a resource network can be built up incorporating information relating to the resources. It then takes the marketing forecasts and uses them to backward schedule these orders from their required dates (see figure below) and can show exactly how the product is made,

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using information commonly found in a companys bill of materials (BOM). The system can also carry out a series of checks to determine data accuracy, which is essential in such an industry.

Outline of the OPT system [Sapoutzis, 1995]:

Input data: Sales/marketing forecasts. Resources (workers, machines). Product routings. Bills of materials (BOM). Work patterns.

OPT system. Buildnet module: Combined BOM, routing and order data to form a resource network.

Serve module: Backward schedule to infinite capacity. Gives load profile for each work centre. Allows identification of critical resources.

Split module: Divides network into critical and non-critical. Critical resources are optimally scheduled. Non-critical resources are reverse-scheduled to serve these, building in some slack.

Output reports: Work dispatch lists. Work centre/machine utilisation statements. Material requirement plans.

4.3 Advantages. OPT is seen as the wests challenge against Japanese manufacturing. It shares many of the JIT views on manufacture, and contains much of the insights that underlie the kanban system [Browne et al, 1988]. Evans [1993] describes its many advantages: 1. A simplified technique for production scheduling: Schedules are not time-consuming to develop. Schedules do not require much data. Less accuracy is required in the data. Less computer-processing capability is required. Less personnel time is required to analyse the schedule.

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2. Less complex user portion: The sophistication of the internal mathematical technique makes the system users job easier. User knowledge requirement is small. 3. Rapid projection of schedule: Quick schedules for the quick modification of the schedules and therefore more flexibility. Schedule changes can occur in a few hours rather than days. Quick schedule development allows for simulation capability. 4. Plant production analysis: Bottlenecks in the production process are specifically defined. Improvements are easily made on the bottlenecks because their definition is clear. Simulation can be used to test variations in plant output and their effects on the plant load. Capacity changes can be simulated. 5. Other: Actual manufacturing resources are taken into account. Production output is maximised and inventory is minimised. A 10% or greater increase in production output is possible. A 20% or greater reduction in inventory is possible. Smaller batch sizes are calculated based on profitability rather than economic order quantity (EOQ). 4.4 Disadvantages. Unfortunately, as with any other manufacturing system at present, still entails many disadvantages [Evans, 1993]: 1. Requires plant reorganisation: Conceptual organisation is required. Data processing systems are replaced. Management style must be changed. New reporting systems must be learned. Equipment changes and movement may be necessary in order to use OPT efficiently. 2. Disruption of costing and accounting systems: Efficiency can no longer be calculated. Job cost-control data is restricted in some areas. Performance evaluations no longer exist. 3. Users disrupted: Users must be retrained. New reports must be developed for data processing and accounting to handle the new information base. 4. Other: OPT is more complex than other manual methods. A tighter schedule is produced than with other methods, allowing less ability to accommodate production errors. The financial analysis system is changed.

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5. References. American Telephone & Telegraph Company. (1993) Moving Design into Production. McGraw-Hill, United States of America. Anderson, E. J. (1994) Management of Manufacturing, Models and Analysis. Addison-Wesley, Wokingham, pp. 42 - 50. Browne, J., Harhen, J. & Shivnan, J. (1988) Production Management Systems: A CIM Perspective. Addison-Wesley Publishing Company, Wokingham. Buffa, E. S. & Sarin, R. K. (1987) Modern Production/Operations Management: Eighth Edition. Wiley, Canada. Burbidge, J. L. (1996) Period Batch Control. Oxford University Press, Oxford. Delmar, D. (1985) Operations and Industrial Management: Designing and Managing for Productivity. McGraw-Hill, USA. Evans, J. R. (1993) Applied Productions and Operations Management: Fourth Edition. West Publishing, United States of America. Fogarty, D. W., Hoffmann. T. R. & Stonebraker, P. W. (1989) Production and Operations Management. South Western Publishing, Ohio. Hill, T. (1991) Production and Operations Management: Text and Cases. Second edition, Prentice Hall, pp. 215 217. Horne, C. A. (1987) Product Strategy and the Competitive Advantage. P&IM Review, no. 12, December. McMahon, C. & Browne, J. (1993) Just-In-Time in CAD CAM from Principles to Practice. Addison-Wesley, Wokingham. Muhlemann, A., Oakland, J. & Lockyer, K. (1992) Production and Operations Management. Sixth ed., Pitman, London. Plossl, K. R. (1987) Engineering for the Control of Manufacturing. PrenticeHall, New Jersey. Sapoutzis, P. (1995) Use of Modern Manufacturing Techniques to improve the Operation of a Production Cell. MSc Advanced Manufacturing Systems dissertation, University of Salford. Schonberger, R. J. (1982) Japanese Manufacturing Techniques: Nine Hidden Lessons in Simplicity. Free Press, New York.

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Sower, V. E., Motwani, J. & Savoie, M. J. (1997) Classics in Production and Operations Management. International Journal of Operations and Production Management, vol. 17, no. 1, pp. 15 28. Ulrich, K. T. & Eppinger, S. D. (1995) Product Design and Development. McGraw-Hill, Singapore. Voss, C. A. ed. (1995) Manufacturing Strategy: Process and Content. Chapman & Hall, London. Voss, C. A., Ahlstrom, P. & Blackmon, K. (1997) Benchmarking and Operational Performance: Some Empirical Results. International Journal of Operations and Production Management, vol. 17, no. 10, pp. 1046 1058.

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